What Does REO Occupied Mean in Real Estate?
Unpack "REO occupied" in real estate. Understand what it means for bank-owned properties with occupants and how lenders manage them.
An “REO occupied” property is a home a lender, like a bank, has taken ownership of after foreclosure, but where people still reside. While the property is Real Estate Owned (REO) by the financial institution, it remains occupied. Occupants may be former homeowners or tenants with valid lease agreements. This status creates unique considerations for the lender and potential buyers.
Understanding REO Properties
Real Estate Owned (REO) describes a property a bank or lender acquires through foreclosure. This happens when a homeowner defaults on mortgage payments, leading to foreclosure proceedings. The property is often sold at public auction. If it doesn’t sell, or bids are insufficient, the lender takes ownership.
Once the lender owns the property, it’s classified as an REO asset. The bank’s main goal is to sell the property quickly to recover financial losses from the defaulted loan.
Meaning of Occupied Status
In an REO property, “occupied” means individuals are living in the home despite the lender’s legal ownership. The presence of occupants prevents the bank from having immediate physical possession or full control.
Occupants often include previous homeowners who have not moved out. The property may also be inhabited by legitimate tenants with valid lease agreements. In some cases, unauthorized residents or squatters may occupy the property.
Characteristics of REO Occupied Properties
The physical condition of REO occupied homes often varies, frequently showing deferred maintenance or disrepair. This can result from the former owners’ financial distress or a lack of upkeep by occupants aware of the foreclosure. Buyers are cautioned these properties are sold “as-is,” meaning the lender will not undertake repairs.
Gaining access for showings, appraisals, or inspections can be challenging. Since individuals live in the home, appointments are often required, and interior access may be limited or denied before purchase. This limited access means potential buyers might rely on exterior assessments and public records to gauge the property’s condition.
Bank’s Process for REO Occupied Properties
If occupants do not voluntarily vacate an REO property after foreclosure, the bank initiates a formal legal eviction process. This legal action is separate from the foreclosure and necessary to lawfully remove residents.
To encourage willing departure and avoid lengthy legal proceedings, banks often use “cash for keys.” The bank offers a financial incentive for prompt, voluntary departure, ensuring the property is left in an agreed-upon condition. This saves time and legal expenses compared to a contested eviction. Once vacated, the bank secures the property, assesses damage, and prepares it for sale.